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Fleming on banking and growth

Date: Thursday December 28th, 2017

Bank South Pacific has had several notable developments in what has been an economically challenging year. Business reporter MARK HAIHUIE speaks to Bank South Pacific group chief executive ROBIN FLEMING.

Q: How has 2017 been for BSP, both in Papua New Guinea and the Pacific region?

FLEMING: BSP released its thirdquarter results to the market in early November where we reported a net profit after tax of K566 million for the group for the nine months to September 2017. This represented an increase in profit of approximately 15 per cent. All businesses within the BSP Group contributed positively to the performance, with PNG leading the way as the largest business in our group, but equally the other countries in which we operate are also performing well.

The improved performance that our profit reflects is primarily due to growth in our business, both lending and our retail banking, and not due to any increase in fees or charges, noting BSP has not increased any of its fees for over five years. We recently eliminated the issue fee for our Visa debit card and this is now free for any customer of BSP, and we have also changed our EFTPoS fee for merchants whereby the minimum fee for a merchant is now 1 per cent of the purchase amount and no longer a minimum of K0.50t to endeavor to remove barriers to more use of electronic payments and have less reliance on cash.

Q: What are your views on the national Budget and how will it influence business next year?

FLEMING: The Budget process hasbeen somewhat more consultative this year with the Treasurer having dialogue with representatives of commerce and industry as well as peak bodies.

Whilst there is some conjecture relating to certain assumptions in the Budget there are positives in commentary and statements by the government within the Budget papers. Stability in relation to mining agreements for the prospective new ventures provides project sponsors with confidence in relation to decisions for investments for these new projects.

Eliminating uncertainty is key to engendering confidence for foreign investors. Changes such as the removal of the training levy is positive for small businesses, and the changes to tax on long service leave will also benefit many salary and wage earners in PNG. Preparing and handing down a budget is one thing, but more important from a business and market perspective is delivering the outcomes projected in the Budget.

In his Budget speech and various presentations to the public and business representatives, the Treasurer went to lengths to provide a progress report on the 100-day plan. Continuation of scorecard reporting to the public such as this will be a critical component of maintaining confidence with the business community.

Q: Foreign exchange availability has been the most pressing issue for businesses this year. How do you see this issue next year and onwards?

FLEMING: With the release of US$100 million by the Bank of PNG in October there was some improvement in foreign exchange availability, albeit that delays in settling orders still persist. The Budget papers indicated that with the drawdown of the balance of the Credit Suisse loan sometime following the tabling of the loan agreements in Parliament, there would be additional foreign exchange made available to the market.

The more substantive change to the foreign exchange dynamics will occur as we move closer to front-end engineering and design, and financial investments decisions by Oil Search, Exxon and Total for the next LNG Project.

Q: In our last exchange you mentioned that BSP would be offering an insurance product in 2018. Can you explain that and is BSP launching other new products next year?

FLEMING: The Bank of Papua New Guinea has approved a life insurance licence for BSP Life Limited to commence offering life insurance. The first product that will be offered with Insurance covering the death of a personal loan customer for loans of up to K50,000. This will become an added feature of all new unsecured personal loans from January 1, 2018. There will be no additional cost to our personal loan customers for this product feature.

From around the second half of 2018 we will be in a position to commence selling a life insurance endowment product at any branch of BSP. This product allows individuals and small business owners to pay an agreed amount every month for their insurance policy and after a period of say 10 years they will receive a preagreed lump sum payment. Endowment policies such as this may also include life cover and health cover.

Q:Getting the unbanked into the formal financial system is a goal of the bank. The other initiative is to get the same lot onto e-banking platforms and away from branch-es. What has been the progress of this so far?

FLEMING: BSP continues to place enormous effort on bringing new customers into the financial system. We have undertaken financial inclusion training for almost 60,000 people across PNG over the past two years. BSP has also opened almost 200,000 accounts over the same time. This is a significant contribution to financial inclusion in PNG.

To put this into perspective, our financial inclusion training in most areas of PNG involves our staff travelling at times up to four hours to reach relatively remote communities, carry out town hall training and open accounts. The effort of our staff in this important activity rarely receives the recognition it deserves.

No other bank in PNG is as committed to bringing banking to all parts of PNG as BSP is, and our activities in this important area are undertaken without financial sup-port or grants from external parties.

With mobile banking available on telephones, and a network of EFTPoS terminals all around PNG, our activities will start to move towards migrating our customers from cash to more electronic transactions. We have 10 million transactions across BSP's system every month and only 10 per cent of these are carried out in our 44 branches and 44 sub branches. Despite this our customers still experience queues and waiting times at our branches and ATMs and our efforts are being directed towards encouraging customers to use our digital banking rather than cash.

Q:How would you respond to comments that the BSP FHOS is not aligned with the financial capacity of the average middle income earners in allowing them to own a house?

FLEMING: BSP has already fundedmore than K160 million in FHOS loans which means that more than 400 families have benefited from the scheme since it was introduced. As more state leases become avail-able this is expected to double in the next 12 months. The multiplier effect of housing developments in the broader economy cannot be understated as people are employed in earthworks, tradesmen in house construction, fridges, washing ma-chines, ovens and other household goods are purchased to furnish the house, which involves many sectors of the economy.

It should also be remembered that the Government is not guaranteeing these FHOS loans, but providing funds for liquidity and interest risk management. The Minister for Lands has initiated improvements in processes at Lands Department which will improve processing times with Lands Department.

Q: Can you give an update on the expansion by BSP into Asia and how this expansion may play out in the next three to four years?

FLEMING: In May this year weconcluded participation in an asset finance joint venture that is being renamed BSP Finance Cambodia. Over the next two years the objective of ourselves and our partner is to grow and develop our business in Cambodia, with profitability and market share targets key metrics that we will focus on. With our partners we will also investigate the prospects of similar asset finance business in Lao.

Despite BSP's expansion in the Pacific and now South East Asia, BSP is a PNG-owned and operated business and we continue to ensure that our home market in PNG is our primary priority.

We are investing in a new modern banking system, the first substantial change in our bank operating system since privatisation in 2002. Accompanying this is our ongoing development in Digital Banking, not just in systems but also our people, with Nuni Kulu appointed deputy general manager Digital in November as recognition of the importance of remaining at the forefront of digital banking developments.